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Fearing the Overdraft? Here’s How to Avoid and Prevent It

Young person looks at mobile phone, shocked to find an overdraft notice.

Many people think that overdrawing their account can only happen when you write a check for more than your account balance, but that’s not true. There are a handful of ways people can overdraw, including automatic bill payments, debit card purchases, and ATM withdrawals.

In every case, an overdraft fee is the result, with other unhappy ramifications soon to follow.

Thankfully, avoiding the whole mess is within your power. Here are six ways to prevent overdrawing your account. Take these steps, and you’ll be more likely to stay on top of common situations where previously you would have overdrawn… again.

  • Use your check register. The last sheet in your checkbook is called a check register. Here, you can record every check you write, as well as debit card purchases. This way, no transactions can slip through the mental cracks, so to speak. One of the worst feelings is realizing you forgot to track a check until it cleared. Your register can give you a quick snapshot of purchases that are pending, so that doesn’t happen.
  • race yourself for automatic bill payments Savvy money managers use auto-pay for many common bills, like utility payments, insurance premiums, and loan payments. The only downside of automation is sometimes, a person may forget these auto-deductions are scheduled to happen, and can be making other purchases that diminish their balance more than is safe.
  • Keep a cushion. “Padding” an account means keeping extra money in your checking account so that you’re free to forget the occasional auto-payment or pending check. If you have plenty of money in your account, stress dissipates, since you don’t need to count the days until payday or hope a check doesn’t clear for another few hours, for example.
  • Go digital. If you’re on a budget, overdraft fees shouldn’t be a concern, since you’re only spending what has already been predetermined. If that’s you, check out a few of our favorite mobile apps for tracking spending and achieving financial goals. Even better than knowing your account’s balance is knowing each category’s balance, so you never even flirt with the potential of an overdrawn account.
  • Stay inspired. Write a list of two or three things you could have done with the money you were charged last time you overdrew your account. Add up merchant costs, bank fees, and even the interest charged you while you made it right. All of this can quickly add up. What would you have done with that cash instead? Post an inspiring picture or quote on your car’s dashboard or bathroom mirror to remind yourself not to let it happen again.
  • Avoid courtesy overdraft protection. This may seem counter-intuitive, since your bank’s go-to solution is to offer you this product, and its name sounds like the perfect method of prevention. The drawbacks though, may override any favor this may do you. For starters, you are still charged that hefty overdraft fee. There’s no getting out of it. Next, each day your account remains negative, you’re charged a daily amount by your bank. And finally, the program itself usually costs you a monthly amount to be enrolled in at all, even if you never “go negative”.

Fear and stress can be both unpleasant and harmful to your health, according to the U.S. Department of Health and Human Services. Fear of an overdraft doesn’t need to rule your thoughts, causing stress. Instead, turn your fear of the overdraft into a healthy respect by taking the above steps today to prevent an accidental overdraw and the fees that are bound to come with it.

If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. Contact us today for a free financial assessment with one of our certified credit counselors.

Image Source: Flickr

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